How to Come Out on Top in the Face of InsurTech Disruption

The digital revolution has disrupted industry after industry. Now it’s happening with insurance.

There are three good reasons insurance has resisted the digital revolution up to this point—and they must be reckoned with for the industry to progress.

First, insurance is highly regulated, and regulation slows down change. Regulation’s motto might be, “Any change worth making is worth making gradually.” But the promises of radically lower service cost structures and dramatically faster and better customer interactions are irresistible to the regulator’s goal of protecting customers and guaranteeing a fair playing field.

Second, large books of current contracts and the large amounts of capital required to back them up are barriers to entry to start ups whose core competencies are digital, not financial. But traditional contracts can be made obsolete by new ecosystems that include the use of big data and artificial intelligence that rethink the concept of risk. Given a new business model, innovative companies can attract capital from non-traditional sources by earning higher returns on investment.

Third, the cultures of insurance companies are notoriously conservative. This was a quality that was helpful, even necessary, in the traditional industry, but one that makes the incumbents vulnerable to disruptive change.

First steps—automate manual processes

Perhaps the easiest first steps that traditional insurance providers can take to successfully compete against insurtech disruptors will be to automate manual processes.

There may always be a role for relationship-based selling in insurance. But there are digital channel alternatives. Amazon already offers Amazon Protect, an additional warrantee insurance product that covers accidental loss of devices. Its recent investment in the Indian insurtech, Acko, which offers only online insurance products, gives Amazon access to a wider range of insurance offerings. More than just the automation of a manual selling process, the investment gives Amazon’s big data engineers access to Acko’s customer data and will enable them to personalize insurance offerings in India—and then bring these offering to the rest of the Amazon customer base.

Similarly, digital tools slash the costs of claims adjusting while speeding processes and improving customer service. Immediate access to much more data, along with artificial intelligence, improves the quality and responsiveness of the actuarial process. Some studies have shown the cost of claims processing has been reduced by 30%

Respond to Opportunities in Changes

While automating manual processes may be the first step, it is by no means the last or even the most significant aspect of the changes in the insurance industry that demand digital responses.

Sensors and artificial intelligence in cars, while controversial at the moment, will inevitably make driving inherently safer. The risk-based cost structure will be slashed. What if big data engineers had feedback on how each customer drives—speed, sudden stops, etc.? They could cherry pick low risk drivers for high margin insurance products.

Will Amazon’s Alexa use voice-activated AI to help patients negotiate the healthcare system more astutely?

Will employer-led health care incentivize people to stay healthy instead of just paying for treating the sick?

Will AI and big data-based healthcare management and technologies make it possible for large corporations to self-insure, taking the insurance company out of the process?

One of the most dramatic changes in the insurance industry is the rise in cybercrime. Traditional insurance companies will be forced to adopt new technologies to address cybercrime. And the technologically savvy insurtech may find that the threat of cybercrime presents opportunities.

Going yet deeper—what problem are we trying to solve?

As dramatic as these changes are, they are limited in an important way: they start with existing practices that solve a traditionally defined problem: risk analysis and mitigation; manual approaches to transaction processing; keeping up with customer trends, etc. They are often internally focused.

What’s needed is an innovation process that is customer centric and explores what jobs customers are trying to accomplish. Certainly, we are interested in how they are coping with these jobs given the set of products and solutions that are presently available. But we are also interested in customers’ frustrations, their unsolved problems, their compromises and work-arounds. And perhaps most importantly we are interested in the anomalies—the things that aren’t working that should work. Or the contrary, things that are working that were never imagined by traditional organizations.

These frustrations and anomalies are the thought-starters we need to create experiments with new solutions, to try things, learn from successes and failures, and evolve entirely new ecosystem solutions to a new set of customer problems.

Examine the buyer’s journey

A useful way to turn the focus around from an internal view of how traditional problems are being solved, to the customer’s point-of-view—and their frustrations and anomalies—is to systematically examine their buyer’s journey and customer journey.

Rather than focus on existing offerings, processes, and issues, examining the buyer’s journey explores the underlying motives and needs customers are pursuing. This kind of radical approach—going to the root causes of customer behaviors and frustrations—leads the innovator’s thinking to new possibilities and completely different ways to set up the ecosystem.

Tools that support radical examination of the buyer’s journey are applications of what’s called Outcome-Driven Innovation (ODI) and Jobs-to-be-Done (JTBD) methodologies. ODI is based on the theory that people buy products and services to get a “job” done and that customers use numerous metrics to evaluate success when getting a job done. These metrics can be defined by a special type of need statement called “desired outcomes.” By knowing how customers measure value when getting a job done, companies are able to align the actions of marketing, sales, planning development, and R&D supported by new technologies, with these metrics and systematically create customer value.

ODI-based diagnosis delivers critical insights about:

Where customers tend to struggle in the buyer’s journey

How changes in the ecosystem can address unmet buyer needs during the journey

What new or modified products and services could help satisfy unmet needs during the buyer’s journey

Using a buyer’s journey framework delivers powerful insights because it:

Examines all of the jobs buyers want to complete before, during and after making a purchase

Defines the complex web of tasks to be performed across a wide assortment of marketing channels

Identifies where buyers have underserved needs and quantifies the potential benefit of meeting these needs

Let’s get to work

Artist Chuck Close likes to say, “Inspiration is for amateurs. The rest of us just show up and get to work.”

Examining the buyer’s journey with the tools of ODI and JTBD provides exactly the systematic framework that’s needed. See how they were applied for retail consumers, and start envisioning how you can disrupt yourself before an outsider does it to you.

About the Author

Thea is a results-driven marketing leader with a history of integrating digital solutions with traditional experiential, and engagement marketing. She boasts an impressive record of acquiring new clients, exceeding new and existing client expectations, and positively impacting return on marketing investment. Thea's expertise lies in the financial services industry, encompassing B2B and B2C within banking, insurance and investment.